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Cocoa beans are grown within a geographical zone 10 degrees to the North and South of the equator. The main producing regions are Africa, the Asia and Oceania region and the Americas. Cocoa beans are converted into the three intermediate products of cocoa liquor, cocoa butter and cocoa powder through a series of cleaning, roasting, grinding and other processing methods. Cocoa processing takes place mainly in Europe, U.S and other developed countries.
Picture 1.1 Raw Cocoa Beans
The picture 1.1 shows that it is the raw cocoa beans which have been pick from the cocoa tree. From these cocoa beans, it will be process trough the cocoa beans grinding process to become cocoa butter and cocoa powder.
However this trend has started to change, wherein the cocoa bean producing countries or “origin” countries have increasingly carried out their own processing. Cocoa butter and cocoa powder are important ingredients to provide the flavour, texture and other characteristics to chocolate and chocolate-flavoured foods. Cocoa butter is also used in pharmaceutical and cosmetic applications.
The cocoa bean industry in Indonesia is highly fragmented with cocoa beans primarily grown by small plantation farmers. Indonesia’s cocoa beans are grown mostly on the island of Sulawesi, although cocoa bean plantations are present on Java and Indonesia’s other islands. Indonesia is currently the world’s third largest producer of cocoa beans (14%), after the Ivory Coast (38%) and Ghana (20%) in 2008/2009 which has been shown in Figure 1.1.
Figure1.1 the three largest cocoa producers (Cote d’Ivoire, Ghana and Indonesia) supply some 70% of world cocoa production
1.1.1 Cocoa Beans Production
In October 2008, the Indonesian Government announced plans to accelerate the replanting of cocoa crops in order to achieve a sustainable cocoa industry in Indonesia. The federal government put aside approximately US$255 million beginning in 2009 to support the cocoa industry, while provincial and district government were expected to spend a total of approximately US$59 million.
Figure1.2 Indonesia Cocoa Bean Production
Source: ICCO, USDA, Reuters, LMC Estimates September 2009.(Internal Data)
1.1.2 World Cocoa Consumption
There are 2% cocoa consumption in Africa, 14% cocoa consumption in Asia and Oceania, 35% cocoa consumption in U.S. and 49% in Europe. This means that U.S. and Europe are the major cocoa consumption in the world as we can see in figure 1.3.
Figure1.3 Total world cocoa consumption
Based on the data figure 1.3 above, we can see that U.S and Europe was the largest consumption of chocolate. In this country, they have the standard for their manufacturing of the chocolate which are called A Premium Chocolate. While in Africa there are only a small percentage of consumption the chocolate and 14% was in Asia and Oceania which was including China, Japan, etc.
1.1.3 Cocoa Beans Grindings – Intermediate Cocoa Products
Cocoa bean grinding is the process of converting cocoa beans into intermediate cocoa products (cocoa liquor, cocoa butter and cocoa powder). After cocoa beans are roasted, the cocoa beans are ground to give 80% fine cocoa liquor and 20% shells and waste. The cocoa liquor may be used as a confectionery ingredient, or further processed into cocoa butter and cocoa powder. Cocoa bean shells and waste may be used as animal feed.
The cocoa industry measures production of intermediate cocoa products by calculating the tonnage of cocoa beans ground per year (“Grindings”). Grindings is a principal process in the production of intermediate cocoa products. Specifically, it is the process by which cocoa beans are turned into intermediate cocoa products such as cocoa butter, cocoa powder and cocoa liquor.
Figure 1.4 World Grindings of Cocoa Beans by Region
Source: ICCO, March 2009 (Internal data)
Based on data figure 1.4 that there are 16, 6% grinding process in Africa country which are the most smaller chocolate demand for the country, 19,5% in Asia and Oceania which are the second smaller chocolate demand including China, Japan and Indonesia, 22,7% grinding process are happen in Americas which are the second larger chocolate demand and 41,1% grinding process are happen in Europe which are the largest demand for the chocolate in the world.
1.1.4 Grinding Activities in Indonesia
According to the International Cocoa Organization (ICCO), Indonesia’s cocoa grinding process is forecasted to decrease by approximately 20% to 120,000 tonnes in 2008/09. The significant forecasted decrease in Indonesia’s grindings is mainly due to the suspension of operations of some Indonesian cocoa processors, which is in turn due to the dual impact of high cocoa bean prices and the declining demand for intermediate cocoa products in the international market.
Figure 1.5 Monthly Average Export Price of Indonesian Cocoa Butter
Source: Internal data
Based on the figure 1.5 shown that the export price for cocoa butter is increase due to June 2009 which is $2.218 per tons and the higher price is in August 2008 with $ 2.705 per tons, while in the past April 2008 is the lowest price which is $1.783 per tons. These are the Monthly Average Export Price of Indonesian Cocoa Butter.
Figure 1.6 Monthly Average Export Price of Indonesian Cocoa Powder
Source: Internal data
From the data figure 1.6 shown that the export price for cocoa powder from January 2008 is US$ 903 per tons is the lowest price and the price is increased when June 2009 becomes US$1.539 per tons which is the highest price for the export price of Indonesia cocoa powder.
1.1.5 Cocoa Beans Industry
As we know that cocoa bean prices are generally established by world markets and are influenced by world production and demand, cocoa bean inventory levels and world grinding capacity. In the year 2008, the global crisis is happening in U.S and in year 2009 it was happened in Europe. The International Cocoa Organization (ICCO) forecasts the world’s cocoa grindings to decrease by approximately 6.7% in 2008/09 compared to the previous cocoa year.
Figure 1.7 World Cocoa Production, Grindings and Prices
Source: (Internal data)
Based on the data from figure 1.7 shown that according to the International Cocoa Organization (ICCO), in 2007/08, Indonesia exported approximately 73.4% of its cocoa bean production. Cocoa beans exported to Malaysia, the largest cocoa bean grinding country in Asia, accounted for approximately 57.1% of total Indonesia’s gross exports of cocoa beans in 2007/08. Cocoa bean exports from Indonesia to the U.S decreased dramatically by approximately 77.8% from 2005/06 to 2007/08 primarily because the total volume of cocoa bean imported by the U.S declined by approximately 24.6% in 2007/08 as compared to 2005/06, and the U.S increased its imports, as a percentage of total imports, from other countries such as Ecuador and Papua New Guinea. In addition, there is a global trend towards increased grindings by cocoa bean producing countries and the export of value-added semi-finished products rather than the raw cocoa beans from origin.
Table1.1 U.S imports of cocoa beans and chocolate
Total cocoa and products 1/
REST OF WORLD
PAPUA NEW GUINEA
Cocoa paste, butter and powder
CHINA, PEOPLES REPUB
REST OF WORLD
REST OF WORLD
Source: USDA, www.fas.usda.gov/ustrade (internal data)
From the data show in table 1.1, U.S has been decreasing in importing the cocoa beans from Indonesia for the year 2008 where the crisis is happen. As we can see that in year 2003, U.S imports the cocoa beans from Indonesia are 193, 6 million dollar. And for the cocoa paste, butter and powder, the data shows that U.S has been increasing in importing from Indonesia from year 1999 is 56, 4 million dollar to 138, 5 million dollar in year 2008. Starting from the end of year 2008, the impact of U.S and Europe economic crisis is happened. Moreover, since then the international cocoa traders which are based in U.S and Europe are experienced 7 times higher than normal inventory. This thing happened because the International Cocoa Traders are speculating to collect or buy the cocoa beans, powder and butter to anticipating of the cocoa commodity price getting high and higher. Unfortunately, the International Cocoa Traders wrong in predicting the cocoa commodity prices.
In April 2010, as part of its efforts to support the local cocoa processing industry, the Indonesian government imposed an export tax of between 0% and 15% depending on prices of cocoa exported to the U.S market. The move, which is aimed to boost domestic grinding, is expected to reduce the exports of Indonesian beans which are relatively more expensive now with the imposition of the tax.
Figure1.8 Monthly Average Export Price of Indonesian Cocoa Beans
Source: “Statistics Indonesia” (Internal Data)
The figure 1.8 shows the monthly average export price of Indonesia cocoa beans from January 2008 to June 2009 which was on April 2008 is the lowest price with US $1.783 per tons and the highest is US $ 2.705 per tons in August 2008.
According to the data from Indonesia Cocoa Association (ASKINDO) in a year 2009, there were 12 factories grinding cocoa beans which based in Indonesia have stops their production of total 14 factories in Indonesia, even 4 of it were shuttered. Exports go down because of the low demand while the price of the cocoa beans did not come down. This condition price of cocoa beans which is in fact did not followed up by the price increases of cocoa butter and cocoa powder, that’s why it cannot be able to cover the production cost of cocoa beans grinding company. (http://www.detikfinance.com/read/2009/04/12/171235/1114276/4/12-pabrik-penggiling-coklat-stop-produksi)
1.2 Company Background
PT. Davomas Abadi, Tbk is Indonesia’s leading producer of cocoa butter and cocoa powder. PT. Davomas Abadi, Tbk was established in 1990 and quickly rose to become Indonesia’s leading producer of cocoa butter and cocoa powder. PT. Davomas Abadi, Tbk has been listed on the Jakarta Stock Exchange since 1994.
Based on the capacity, PT. Davomas Abadi, Tbk is the largest capacity with 141.000 tons compared with the closest competitors who are called PT. General Food Industries which was known as Petra Foods and was based in Singapore with 310.000 tons and PT. Bumi Tangerang with the capacity of 40.000 tons.
PT. Davomas Abadi, Tbk exports 100% of its cocoa products under the trade name as “PT. Davomas Abadi” to the international Cocoa Traders. PT. Davomas Abadi, Tbk is committed to supporting the drive of export-led growth as encouraged by the Indonesian government. By directing its production to exports, PT. Davomas Abadi, Tbk brings in foreign exchange earnings that helps guarantee Indonesia’s economic development.
Table1.2 PT. Davomas Abadi, Tbk and its competitors in Asia
From the table 1.2 source from Bloomberg which is a premier site for updated business news and financial information, we can see that there are no other Indonesia cocoa grinding company besides Davomas with the capacity 141,120 tons per year with the sales volume for 2006 is 84.900 tons per year and the unit sales in 2006 is US $2.129 per tons. The second is Petra Foods which are based in Singapore.
Within the Region, PT. Davomas Abadi, Tbk competes with Malaysia which owns many cocoa processors companies but mostly source their beans from Indonesia, under the current export tax regulation; it is unlikely that Malaysia will be a serious threat for PT. Davomas Abadi, Tbk. In a word competition, PT. Davomas Abadi, Tbk will compete with Ivory Coast and Ghana as the cocoa producing countries.
In year 2008 and 2009 when the economic global crisis is happened in U.S and Europe, the global cocoa beans demands have been decreased. These economic global crisis impacts to PT. Davomas Abadi, Tbk sales because there is no sales order or demand from its customers which are the International Cocoa Traders based in U.S and Europe. Furthermore, PT. Davomas Abadi, Tbk never experienced this situation before.
The situation of economic global crisis which is happened in U.S and Europe were reported in Reuters. “Grindings in Southeast Asia are facing similar problems with those in Europe and the Unites States. The market is lethargic, causing some factories to cut capacity or temporarily stop operations,” said Piter Jasman, chairman of the Indonesian Cocoa Industry Association.
“The global economic crisis has resulted in falling demand for butter. Also because of high bean prices, grindings in Indonesia will fall to 120,000 tons in 2009 from 170,000 tons in 2008,” he told Reuters by email from Jakarta
“Some grinders have no choice but to stop operations. They can only resume the activity if the market recovers,” said a dealer in Jakarta. “Grinders have shifted to selling their own bean stocks. It’s making money.” (http://uk.reuters.com/article/idUKSP47835020090408)
Table 1.3 PT. Davomas Abadi, Tbk sales report
From the table data 1.3 above, we can see that PT. Davomas Abadi, Tbk production capacity in year 2009 is stable on 141.000 tons per annum or per year while the production volume is strictly decreasing from 128.000 tons per year in 2008 to 18.000 tons per year. For the cocoa butter, there is only 7.000 tons per year is also strictly decreasing from 57.000 tons per year. The cocoa powder is from 65.000 tons per year in 2008 and is strictly decreasing to 9.000 tons per year in 2009. For the new product which are deodorized cocoa butter and alkalized cocoa powder were in the same position with 1.000 tons per year in 2009 and it decrease also from year 2008. So, based on the data above we can conclude that PT. Davomas Abadi, Tbk utilisation rates is only 19% from 100%.
PT. Davomas Abadi, Tbk customer base consists primarily of International Cocoa Traders in the U.S and Europe. The products are sold at prices denominated in US Dollars. The price of intermediate cocoa products are determined with reference to the estimated two-month future market price quoted in New York Board of Trade (NYBOT) and London Terminal Market, matching the delivery dates.
PT. Davomas Abadi, Tbk as Indonesia’s dominant processor, has strong buying power. The Company’s customers are well-established supplier network and relationships in a fragmented supply market which have nine customers and it is all the International Cocoa Traders, but there are no long-term sales agreements between PT. Davomas Abadi, Tbk and its customers. PT. Davomas Abadi, Tbk sales are all based on customer’s order to produce the products.
Based on the situation above we can see that PT.Davomas Abadi, Tbk is facing a problem to retain, to keep in contact with their customers. Previously period, the customers are the one who is come to PT. Davomas Abadi, Tbk and asked for the cocoa products. Now, the customers did not contacting and did not order or purchased the cocoa products. In this case PT. Davomas ABadi, Tbk must do something to retain, to keep maintain the relationship with their customers so in the future they will still want to buy cocoa products from Davomas Abadi, Tbk.
Since the relationships between PT. Davomas Abadi, Tbk and the customers is based on the relationship. So, likely the company are using personal selling as their main or primary marketing communication tool. And beside that related to the crisis is there any other marketing communication tools that can be used for PT. Davomas Abadi, Tbk is to retain and maintain the relationship with the customers and increase the sales.
Based on the background, the problem statements are:
How the Personal Selling can be a marketing communication tool at PT. Davomas Abadi Tbk?
What are the other marketing communication tools that can support personal selling to increase sales at PT. Davomas Abadi Tbk?
The objectives of this research are:
To analyze how is the Personal Selling as their marketing communication tools use to maintain the relationship between the customers and PT. Davomas Abadi, Tbk.
To find out what are the other marketing communication tools to support personal selling at PT. Davomas Abadi, Tbk.
Significance of the Study
This study will be beneficial for marketing communication tools, to develop the study to solve the marketing communication problems at PT. Davomas Abadi, Tbk. The result of this study will increase the knowledge for the researcher. Moreover, this study will be beneficial to the academic world as the result of this researcher can be used as future reference for students and researchers who wish to do related study in the future.
Scope and Limitation
This research will be guided by PT. Davomas Abadi, Tbk as the study objectives. The scopes in doing this research are to implementing a new marketing communication tools, personal selling and other best marketing communication tools to support future growth and diversify its revenue risk and to increase sales at PT. Davomas Abadi, Tbk.
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